Barclays Bank Plc Protection Board (Cross-appellant) v Varsha Dalia
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE SIMON BROWN,Lord Justice Russell,Sir Michael Fox |
| Judgment Date | 06 May 1993 |
| Judgment citation (vLex) | [1993] EWCA Civ J0506-6 |
| Docket Number | CHANF 92/1021/B |
| Court | Court of Appeal (Civil Division) |
| Date | 06 May 1993 |
[1993] EWCA Civ J0506-6
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION (THE VICE CHANCELLOR)
Before: Lord Justice Russell Lord Justice Simon Brown and Sir Michael Fox
CHANF 92/1021/B
MR M BRINDLE Q.C. and MR L THANKI (instructed by Lovell White Durrant) appeared on behalf of the Appellant
MR J JARVIS Q.C. and MR J NASH (instructed by Clifford Chance) appeared on behalf of the Cross-Appellant
LORD IRVINE OF LAIRG Q.C. and MR P SALES (instructed by Ashurst Morris Crisp) appeared on behalf of the Respondent
This is an appeal by the second defendant, Barclays Bank Plc (Barclays) and a cross-appeal by the plaintiffs, The Deposit Protection Board (The Board) against the judgment of the Vice-Chancellor given on
3rd July 1992 (now reported in (1992) 3 WLR 945) whereby he made a declaration in favour of the first defendant (the claimant) upon a point of law raised by all three parties with regard to the proper construction and application of the Deposit Protection Scheme, a scheme of compensation originally created by the Banking Act 1979 and now contained in Part II of the Banking Act 1987 (the Act).
Put shortly, the scheme is designed to alleviate hardship when a bank becomes insolvent. It provides for a fund to be raised, held, managed and applied by the Board. The Board raises the fund by levying contributions from relevant institutions, notably banks. There are at present 500 contributing institutions of which Barclays are one, sued here in a representative capacity. The obligation to make payment out of the fund is to be found in section 58 of the Act, so far as material in these terms:
"58(1) ….. if at any time an institution becomes insolvent ….. the Board shall as soon as practicable pay out of the Fund to each depositor who has a protected deposit with that institution an amount equal to three-quarters of his protected deposit."
Section 59(1)(a) provides that an institution becomes insolvent on the making of a winding-up order against it.
By section 60(1) it is provided that:
"Subject to the provisions of this section, in relation to an institution in respect of which a payment falls to be made under section 58(1) above any reference in this Act to a depositor's protected deposit is a reference to the total liability of the institution to him immediately before the time when it becomes insolvent, limited to a maximum of £20,000 ….."
Thus the maximum sum payable to a depositor under the scheme is £15,000 (three-quarters of £20,000).
Whilst, however, "deposit" is defined in section 5 of the Act, and "protected deposit" is defined in section 61, the Act contains no definition of "depositor" and it is this which has given rise to the present difficulty. More particularly the question raised here is whether the assignee of part of a bank customer's deposit is, within the meaning of section 58(1), a "depositor" who, with respect to the assigned part of the account, has himself "a protected deposit with that institution." The Vice-Chancellor held that an equitable assignee is such a depositor. Barclays and the Board both submit that he is not.
The particular circumstances in which the point presently arises for decision I gratefully take from the following passages in the Vice-Chancellor's judgment:
"The Bank of Credit and Commerce International SA, usually known simply as BCCI, was an authorised institution under the Act of 1987. On the 5th July 1991 the Bank of England presented a petition to the court for an order that BCCI be wound up. One of the grounds relied on was that the company was insolvent. Provisional liquidators were appointed and BCCI ceased trading in England. Depositors ceased to be able to withdraw their money. Fearing the worst, some depositors took steps to maximise the amount of the payments from the deposit protection fund. An enterprising firm of accountants, having taken expert legal advice, wrote around to BCCI depositors telling them of a scheme the accountants had prepared. The scheme was that a depositor should formally transfer and assign part of his or her deposit to family members or close friends "who can be trusted". For instance, a depositor with a deposit of £100,000 would transfer £20,000 to each of five relations or friends [or, I would add, to each of four relations or friends, retaining £20,000 for himself]. Instead of the compensation payable to him being limited to £15,000 as the maximum amount of compensation payable to any one depositor, each of his five assignees could look to the fund for payment of £15,000 in respect of the £20,000 share of the deposit assigned to him. By this means the total compensation payable by the fund would be increased to £75,000. Depositors were urged to hurry, "for you only have until Monday evening 29th July". This was because the winding up petition was due to come before the court again on 30th July."
The assignments were in a printed form of deed. The document recited the "vendor's deposit in a specified account with BCCI. The operative part provided that in consideration of £1 "the vendor by this deed sells, assigns and transfers the sum of [£20,000] of the deposit to the purchaser". The depositor also signed a letter addressed to BCCI, whereby BCCI was given note of the "absolute" assignment in question. The bank was instructed that the sum of £20,000 from the deposit account was now held by the assignee, who was described as "the purchaser", and that he should now be identified by the bank "as a depositor". The letter added:
"If, for administrative reasons, you are unable to arrange for the completion of formalities to designate a separate deposit account in the name of the purchaser, I/we confirm that I/we hold the above mentioned sum on trust for the purchaser."
It was common ground that the assignments were not statutory assignments in conformity with section 136 of the Law of Property Act 1925, but that they were effective as equitable assignments.
Some 50 or so depositors, possibly more, signed transfers in July 1991 in respect of sums totalling several million pounds. There were over 200 assignees. One depositor alone, whose deposits exceeded half a million pounds, executed 26 assignments of £20,000 each.
The scheme was quickly stopped in its tracks. Parliament never intended that the limit on the amount of compensation payable to individual depositors could be side-stepped by dispositions made after formal steps had been taken to initiate the winding up process. On the 30th July 1991 the Banking Act 1987 (Meaning of Deposit) Order 1991 was made. It provided that in future the definition of "deposit" in the Act excluded a sum to which a person became entitled, otherwise than by operation of law, after presentation of a winding up petition. In the case of BCCI, where a winding up petition has already been presented, the changed definition took effect from 31st July. So the loophole, if such it was, was closed although subsequently some months elapsed before a winding up order was eventually made on 14th January 1992. The first defendant is an assignee joined in the proceedings to represent all assignees. The overall sum required to meet the payments due under the protection scheme to BCCI depositors is in the region of £78 million. The sum in issue (in these proceedings) is about £3.7 million."
The Vice-Chancellor emphasised, as do I in turn, that the question raised —whether these assignments had their intended effect for compensation purposes —is one of law, to be answered on the assumption that the assignments were genuine and valid transactions and that there was no arrangement or understanding that an assignee would hold for the assignor any compensation received by him from the fund. The Board have expressly reserved the right to pursue such matters should that become necessary.
Similarly the Vice-Chancellor emphasised that the answer given to the question before the court will be of general application. Its effect will not be confined to assignments made in circumstances similar to those which existed regarding BCCI in July 1991. Even in regard to the future, the 1991 Order leaves untouched any assignments made before the presentation of a winding-up petition.
The issue before the court is accordingly whether arrangements of this nature, assuming always that they are not a sham, are effective to bring the equitable assignees thereby created within the protection scheme so that, upon a winding up, each will qualify in his own right for a payment out of the Fund up to the maximum sum of £15,000.
All three parties agree that to qualify for such payment a depositor must at least be someone to whom the bank is liable immediately before the winding up order is made: so much is clear from section 60(1) —although it is altogether less clear what precisely is meant in this context by "liability", the question upon which most of the argument before us centred and to which I shall shortly return. Whereas, however, the claimant contends that such "liability" (whatever precisely that may be held to encompass) is of itself sufficient to constitute that person a depositor, Barclays argue that more is required, in particular that the person to whom the bank is liable must also be the person who made the deposit in the first place. This appears to have been the main argument advanced against the claimant below, and much of the criticism directed against the Vice-Chancellor's judgment has focused upon his...
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